ETF Update: Growth ETFs, Five ETFs Waiting to Take Off

by: Tom Lydon

Tortoise and Hare: Growth ETFs Outpace Value

For those investors seeking profit now, rather than after a market recovery, growth-oriented ETFs appear to be outpacing the value. One of the biggest reasons this is happening is because of inflation. Large-cap value companies take a hit from rising input costs when inflation hits.

Joanne Von Alroth for Investor’s Business Daily explains that companies can only pass these expenses off to the consumers so much before the prices become too high.

The recent credit tightening is also passing along the higher prices to consumers. Health-care and pharmaceutical companies will also play a big role in value-oriented companies taking the upper hand. The upcoming election will also help to stabilize the lean because the growth gap will close.

When there is more time to put towards tax and spending policies, it will signal the end of the credit tightening, and a shift toward value will come.

Compare and contrast:

  • iShares Morningstar Large Cap Growth Index Fund (NYSEARCA:JKE), down 8.7% year-to-date
  • iShares Morningstar Large Cap Value Index Fund (NYSEARCA:JKF), down 16.6%
  • SPDR Dow Jones Wilshire Large Cap Growth Index (ELG), down 7.1%
  • SPDR Dow Jones Wilshire Large Cap Value Index Fund (ELV), down 13.1%

Five ETFs That Are Waiting To Shine

The ETF world has exploded, and there are hundreds of funds to choose from. But there are a few that are great ideas that don’t seem to have taken off yet.

Matthew Hougan for Index Universe helps us dig through the market and find hidden gems. These are all ETFs with fewer than $10 million in assets as of July 31, 2008.

  • United States 12-Month Oil (NYSEARCA:USL): With $7 million in assets, and a bevy of potential, it is baffling why USL has not taken off with the commodities boom. In theory, USL does not stick close enough to the spot price of oil. Launched Dec. 6, 2007.
  • iPath Global Carbon (NYSEARCA:GRN): The major problem here could be that investors find it hard to fit it into a portfolio. $5 million in assets. Perhaps once industrial production increases, the value of carbon credits will, too.
  • Market Vectors Gulf States (NYSEARCA:MES): $4 million in assets isn’t much compared to the PowerShares equivalent fund with $31 million. The ETF is a pure play on the Middle East, and this region gives a solid diversification tool. July 22, 2008 inception.
  • Claymore Alpha/China Small Cap (NYSEARCA:HAO): $9.8 million in assets. This ETF could be great going forward with the rise of the Chinese middle class and entrepreneurial power. Right now, the bigger state-owned companies dominate and do not reflect the innovation of the middle class.
  • NYSE Arca Tech 100 (NXT): $7 million in assets and growing. This ETF lends itself to the tech companies within all three indexes, rather than just the NASDAQ. There is also a 5% cap-weighting so that the companies do not get overweighted. This pure tech play will not get backed up like the NASDAQ 100 did when financials tanked. March 26, 2007 inception.

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